PART

PART

Regulation of Business

Administrative AgenciesThe Federal Trade Commission

Actand Consumer Protection Laws

Antitrust: The Sherman Act

11

McGraw-Hill/Irwin Business Law, 13/e

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

PART

PART

Regulation of Business

The Clayton Act,The Robinson-Patman Act, and

Antitrust Exemptions and Immunities

Employment LawEnvironmental Regulation

11

McGraw-Hill/Irwin Business Law, 13/e

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

THE CLAYTON ACT, THE ROBINSON– PATMAN ACT, AND ANTITRUST EXEMPTIONS AND IMMUNITIES

PA ET RHC 50“Competition policy is intended to ensure a fair fight, not to punish winners or protect losers.”

Carl Shapiro, Information Rules (cowritten with H. Varian, 1999)

Learning Objectives

Clayton Act: Section 3 Section 7 Section 8

The Robinson-Patman Act Antitrust exceptions and exemptions

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Not illegal unless anticompetitive effect is substantial

Enforcement of Clayton Act

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No criminal penalties and private plaintiffs may sue for injunctive relief, treble damages

Dept. of Justice and FTC share enforcement of Clayton Act to seek injunctive relief or issue cease and desist orders

Quantitative substantiality test (Standard Oil): Courts look at the dollar amount of

commerce involved Qualitative substantiality test (Tampa

Electric): Courts examine the area of effective

competition (total market for product within competitive region) and percentage of market the agreement covers

Meaning of Not Insubstantial

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Prohibits two potentially anticompetitive behaviors:

Tying agreement: restrains trade by requiring buyer to buy one product (tied product) in order to buy another product (tying product)

Exclusive dealing agreements: buyer required to handle seller’s product exclusively or purchase all buyer’s requirements for a commodity from seller

Clayton Act Section 3

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Prohibits mergers to achieve monopoly Applies to acquisition of stock or assets of

another company in any line of commerce or any activity affecting commerce

Act prohibited if it would substantially lessen competition or tend to create a monopoly Functional interchangeability test

Requires Pre-Merger Notification & Report Form filed with FTC and Justice Department

Clayton Act Section 7

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Horizontal mergers: mergers among firms competing in same product and geographic markets Rigorous scrutiny since result is increased

concentration in relevant market Vertical mergers: between firms that

had, or could have had, a supplier–customer relationship and does not directly result in concentration

Horizontal Mergers

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Prohibits any person from serving as director or senior officer of two or more competitor corporations, each with capital, surplus, and undivided profits more than $10 million Excludes banks and common carriers Per se standard of liability No illegality if competitive overlap

between firms is an insignificant part of either firm’s total sales

Clayton Act Section 8

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Enacted to stop major chain stores from price discrimination: Primary: lower prices in areas with

competition; higher prices in areas without competition

Secondary: using power to compel lower prices from manufacturer than offered to smaller firms

Tertiary: customer who received lower pricing from supplier passes savings to its customers

Robinson-Patman Act

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Applies only to discriminatory acts that occur with actual sale in commerce Narrower than affecting commerce test

of the Sherman Act Statutory defenses to Section 2(a)

liability: Cost justification Changing conditions Meeting competition

Robinson-Patman Act Details

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Labor unions: not combinations or conspiracies in restraint of trade; activities generally exempted from antitrust scrutiny

Agricultural cooperatives: exempt under Clayton Act and Capper–Volstead Act

Joint export activities of American firms are exempt under Webb–Pomerene Act as long as activities do not artificially or intentionally enhance or depress U.S. prices

Antitrust Exemptions

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Insurance business subject to state regulation exempt under McCarran–Ferguson Act

Regulated industries receive some antitrust immunity since regulatory agencies have industry oversight

State action exemption recognizes states’ rights to regulate economic activity in the interest of their citizens

Antitrust Exemptions

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Noerr-Pennington doctrine: Sherman Act does not prohibit two or more persons from joining to petition government to obtain government action even if efforts intended to eliminate competition

Patent licensing promotes innovation by granting a limited monopoly to those who invent and develop products and processes

Other Antitrust Issues

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Foreign Sovereign Immunities Act (FSIA): governmental actions of foreign sovereigns and their agents exempt from antitrust laws

Act of state doctrine: American courts will not judge legality of a foreign sovereign’s act

Sovereign compulsion doctrine: available defense if foreign sovereign compelled private party to commit acts that would otherwise violate U.S. antitrust laws

International Law

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Test Your Knowledge True=A, False = B

For most Clayton Act violations, only a probability of significant anticompetitive effect is required.

Clayton Act § 3 prohibits tying arrangements and price discrimination.

Mergers are illegal unless approved by FTC. Regulated industries are always exempt

from the Sherman Act and Clayton Act.

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Test Your Knowledge

True=A, False = B Shirts, Inc. manufactures shirts in

Alabama and sells to retailers in Alabama at a 15% discount due to lower delivery costs. As a result of its action, Shirts, Inc. violated the Robinson-Patman Act.

Vertical mergers are between firms that previously had, or could have had, a supplier–customer relationship.

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Test Your Knowledge Multiple Choice

Mercedes Benz required all of its automobile dealers and service centers to exclusively use Mercedes authorized or approved products. Which of the following is true? (a) Mercedes violated antitrust law by

engaging in an exclusive dealing agreement (b) Mercedes violated law only if the

agreement may substantially lessen the competition or tend to create a monopoly

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Test Your Knowledge Multiple Choice

To determine the anticompetitive effect of a merger, a court must identify: the relevant product market and the relevant? (a) The relevant product market (b) The relevant geographic market (c) Both A & B (d) Both A & B plus whether any officers

or directors of one company are officers and directors of the other company

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Thought Questions Do the exemptions for

antitrust liability available for patents, changing conditions, meeting competition, among others, make sense if the goal of antitrust law is to promote competition? Is regulation the best method for promoting competition?

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